Permabulls accept the end of a bull run at either two points: never or long after the market sours. However, these eternal optimists can help us spot a market downturn long before they accept reality because they offer a signal of fear. When a permabull asserts everything is excellent “but, the Fed needs to be more aggressive,” the permabull is truly saying, “I want you to believe everything is excellent, but excellence now depends on some good ol' fashioned welfare.”
Or, as a normal person would say, “We need help because the economy’s growth is no longer sustainable.” Thus, the bull’s “but” can help an insightful investor move to the sidelines or make bearish investments (e.g., puts, short selling) in uncertain times.
We all have two famous permabulls at our disposal: Larry Kudlow & Jim Cramer. Larry describes himself as a free market capitalist who thinks the US economy only grows. He has a poor record of accepting recessions, and caused a lot of people to lose money at the end of the dotcom bubble.
Although Cramer (host of Mad Money and founder of TheStreet.com) does switch from bull to bear, I consider him a permabull because he is always overwhelmingly exposed to stocks and in bear markets he prefers defensive stocks (e.g., Proctor & Gamble (PG), Pepsi (PEP), etc.) rather than raising huge cash positions. As a result, Cramer is almost always praying for the market to rise. When either of these two CNBC personalities shows you their “but,” it’s time to think about getting out of the market.
For example, Thursday night I was on the treadmill digging my runner’s high when during Kudlow & Co. Larry was glossing the economy like a high school senior in the National Cheerleading Championships. As usual, he only discussed bullish evidence and annoyingly talked over the guests who attempted to mention the credit crisis, inflation, the housing debacle, or waning consumer spending. However, suffering through Larry’s entire show was worth it because he showed me his “but”! When a self-declared king of free market capitalism hypocritically begs for an outside entity (e.g., the Fed) to lay its hands all over the economy, we have ourselves a genuine bull’s “but” signal that the market is in trouble.
Larry’s former partner Cramer has also spent the last week opining that the Fed needs to be more aggressive, despite his unwillingness to call a recession. SmartGuyDMoney also noticed that on days when the market is down, Mad Money places a red down arrow in the corner of the screen. However, no green up arrow is used on days when the market rises. Is Cramer preparing our little home gaming minds for his switch from permabull to bear?
A bull’s “but” is not a pure sell signal. However, when combined with other signals such as the ones discussed in my previous article about a sucker’s rally, we can begin to build confidence that cash, puts, and short selling weak companies is best while analysts and permabulls beg you to buy or hold so they will have someone to whom they can pass their bag of what comes out of a real bull’s butt.
Disclosure: SmartGuyDH likes Jim Cramer and appeared on the first Mad Money episode with a live audience in 2005.